What is marginal efficiency

Marginal efficiency is the additional revenue received by a seller from investing one more unit of production in a market compared to the additional cost paid. Marginal efficiency is a concept in economics, that is, an economic entity in the market for the pursuit of maximum profit, many times for the expansion of production to a zero point, each investment will produce less benefits than the benefits produced by the previous investment, the phenomenon of this reduction in benefits is called marginal efficiency. Marginal efficiency can be used in a wide range of ways, such as urban economic development, urban planning and so on.

When a seller invests a unit of output in the market, the additional income is greater than the additional cost, the seller will expand production; when this additional income is equal to the additional cost, the seller can get the maximum profit, that is, to reach the point of maximum profit; if the production is expanded again, the additional income is likely to be less than the additional cost, and the seller will be in the red. For this reason, the concept of marginal benefit is crucial to the seller. The seller seeks to maximize the profit point and is never happy to lose money.

For example, you are very hungry and you only have money to buy 5 buns to eat. The first bun has the greatest marginal benefit because you are the hungriest and most in need at that time, and you are willing to spend a little more money to buy it; the marginal benefit of the second one is decreasing because there is 1 bun in your belly and you are not so hungry anymore.

The fifth marginal benefit is the smallest, because at that time you are almost full, if the buns are sold expensive, you will not buy. Each expenditure of the price of 1 steamed bun produces a benefit, which is the value you feel you paid for it. It decreases from the first to the last! This is the marginal benefit.